August 8, 2013
A reader asks, “My son-in law has been employed for the past two years, but only 19 months with the current employer. He is paid on a 1099. Another job opportunity has been offered by a different company, and different industry, but he will be making more money with this second company. He also will be paid via a 1099. Will he meet the employment requirement under these circumstances?”
FHA loan rules for employment verification are found in HUD 4155.1. This document gives instructions to the lender for verifying employment, among many other things. According to HUD 4155.1,
“The lender is required to verify the applicant’s employment history for the previous two years. However, direct verification is not required if all of the following conditions are met:
- the current employer confirms a two-year employment history (this may include a pay stub indicating a hiring date)
- the lender only uses base pay (no overtime or bonus pay) to qualify the borrower and
- the borrower signs Form IRS 4506 or Form IRS 8821 for the previous two tax years.”
In this particular reader question, the question seems to be whether or not the FHA loan applicant could qualify for an FHA mortgage only having worked for the previous employer for 19 months. The additional complication of a new job with a different employer raises questions about eligibility for the loan because of the job change. According to HUD 4155.1:
“If the borrower was not employed with the same employer for the previous two years, and/or the above conditions cannot be met, the lender must verify the most recent two years of employment history by obtaining
• copies of W-2s
• written VOEs, or
• electronic verification acceptable to FHA.
No explanation is required for gaps in employment of six months or less during the most recent two years.”
There are many other aspects of a situation like this a lender could take into account–whether the job is an upward move or a lateral one, the overall employment history, and other factors. These circumstances are often handled on a case-by-case basis, so it’s difficult to say whether loan approval is “likely” or not based on just the information in the reader question. From a technical level, the lender simply needs to verify the old job and the new one and make a determination based on the borrower’s circumstances, credit, and other factors. Lender standards may factor in to the final decision.
Do you have questions about FHA mortgages? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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